Because deposits are insured by the FDIC, most of us do not look at the lending behavior of our banks. This creates a(n)________ problem.

Question

Quizplus · Accepted Answer

The term "moral hazard" refers to the tendency of individuals or institutions to take on excessive risk when they are protected from the negative consequences of that risk. In the case of banks, knowing that their deposits are insured by the FDIC may lead to risky lending behavior, as they are less concerned about the potential losses from those decisions. Therefore, the question is hinting towards the moral hazard problem.

Because Deposits Are Insured by the FDIC, Most of Us